SOUTH KOREA Law and Practice Contributed by: Kyu Seok Park, Dahye Cho and Justin Kim, Lee & Ko
3. Regulatory Framework 3.1 Primary Regulators and Regulatory Issues Primary Regulators The primary regulators relevant to private equity funds and transactions involving these funds are the Financial Services Commission and the Financial Supervisory Service, as funds established under the FISCMA bear a duty to continuously report matters ex post to the Financial Services Commission and/ or the Financial Supervisory Service from the time of incorporation/establishment to the time of liquidation, in accordance with the applicable laws. The subject of these reports consists not only of the fund’s total commitment and contribution amounts, but also the identities of the target companies in which the funds made investments. On the antitrust regulatory front, as the legal entity form of funds established under the FISCMA is typi - cally a company, the establishment of these funds will in most cases require approval of business combina - tion from the Korea Fair Trade Commission (KFTC). That said, the amendment of the Monopoly Regulation and Fair Trade Act, pursuant to which the formation of private equity funds will no longer be subject to the business combination report, came into effect on 7 August 2024. However, this exemption only applies to the establish - ment of new private equity funds, and the business combination report will still be required in the follow - ing cases: • a private equity fund invests in a target company; or • a new limited partner invests in an already estab - lished private equity fund or an existing limited partner makes an additional investment or acquires the interest of another limited partner, provided that a simplified review process will apply in such cases. When private equity funds established overseas seek to offer equity to Korean investors, they must under - go a registration process with the Financial Services Commission and the Financial Supervisory Service in advance.
In terms of anti-bribery, sanctions or environmental, social and governance (ESG) issues, there is a grow - ing trend among overseas funds to conduct separate due diligence on the target’s compliance issues before consummating the transaction. To the extent any shortcoming is found in the course of the diligence, the common approach is to introduce new policies or demand enhancement of the existing policies of the target. Regulatory Issues There are three main regulatory issues that impact transactions involving private equity funds. First, if the target is a listed company, private equity funds, like other market participants, have disclo - sure obligations on various matters to the Financial Services Commission, the Financial Supervisory Service and/or the Korea Exchange (KRX). Addition - ally, although this rarely occurs in Korea, if a private equity fund intends to invest by way of a tender offer, it must proceed in compliance with the procedures prescribed by the FISCMA. One of these requirements is to provide evidence of funds sufficient to satisfy accepted offers prior to the commencement of the tender offer. This, in practice, is burdensome for pri - vate equity funds due to the nature of the timeline of their capital calls (ie, within a certain period leading up to closing). In the recent Osstem Implant transac - tion, a landmark tender offer deal in South Korea, Lee & Ko provided evidence of funds to regulators in the form of letters of commitment (which led to the regula - tors later revising the relevant regulations to expressly allow this form of evidence). In this way, investments by way of tender offer have become a considerable option for private equity funds. Second, when acquiring more than a certain equity stake in a target that is above a certain size, a pri - vate equity fund must obtain approval on business combination from the KFTC. While this regulation also applies to other market participants, in the case of pri - vate equity funds, the anti-competitiveness is deter - mined based on the entirety of the fund’s portfolio companies. The last regulatory issue only applies to overseas funds. These funds bear an obligation to report on
584 CHAMBERS.COM
Powered by FlippingBook